Need to Sell Before You Buy? Maybe Not

Many home buyers are feeling “trapped” in their current home.

I interviewed my favorite two Mortgage Brokers who founded their own companies- Ray Biggers of Arboretum Mortgage and Matt Culp of Bainbridge Lending Group, to learn about how someone may solve this problem. My favorite local Financial Planner, Mark Kruse of Brackenwood Capital Management, also had some insight on how to use your portfolio to make a home purchase.


You’re not alone if this scenario sounds familiar.

Brenda and David don’t have the liquid funds to be able to purchase their next home: they need the net proceeds from selling their current home to become serious home-buyers. They don’t want to make an offer to purchase be contingent on the sale of their home because that makes their offer unattractive in today’s competitive market.

Doing so also removes a great deal of negotiating power on their sale since they would be under a tight deadline to get it sold. In this record-low inventory marketplace, well-qualified buyers are swift and paid cash in 25% of the 2015 transactions on Bainbridge Island with little to no contingencies attached to the offer. Sellers often have opportunity to select from multiple offers and decide which buyer has the greatest chance to close the transaction. So how is a buyer who must sell first able to compete?

Disclaimer: I am not a financial planner and am not suggesting that any of these solutions are right for you. Buying a home before selling a home obviously means owning two homes for a period of time and should be considered very seriously. As such, I encourage you to seek the advice of your trusted advisors.

Asset Rich, Cash Poor

A few lending scenarios may be available as part of your investment brokerage relationship. Several large banks with associated investment brokerage services offer loans tied to clients’ brokerage account assets. Retail loans are secured by brokerage account assets. Translation: investment assets are pledged as loan collateral. While technically not margin loans (loans that leverage actual investment inside brokerage accounts), investment values can impact how and when loans are repaid.

Bridge Loan

A “bridge loan” is a short term loan taken against a borrower's current property to fund the down payment of their next purchase. In essence, you can use your home's equity for a down payment without the seller knowing you have to sell your home to pay for it. The eliminates the need to include a home sale contingency in your offer, which in today's market is incredibly disadvantageous.

This interim financing and is good for up to a year and carries an interest rate roughly 2% above the average fixed-rate product and higher than normal closing costs. A high level of equity is required in the existing home to qualify for this loan which essentially “bridges the gap” between the time the new property is purchased and the old property is sold.

Line of Credit

A homeowner who has a lot of equity in their home may be able to liquidate some into cash with a Home Equity Line of Credit. This second mortgage would give funds for the strong position of 20% down payment. This is something that should be done several months before seeking application for financing for the new home and must be done with a mortgage professional that knows your long term strategy and can ensure you will be able to complete the process as intended.

“Hard-Money” Lending

This fairly esoteric funding approach is not uncommon during particularly aggressive “seller’s market” real estate phases. Lenders that specialize in this type of loan are not FDIC-Insured banks. Loan terms are almost always short-term (less than 6 months), secured by current home equity, and almost always bring unfavorable rates and fees versus traditional bank lending. Hard-money lending is a “last resort” consequent to being unable to secure traditional bank financing. INMAN news published an article about private lenders on May 16, 2016 and can be found here.


With historically low mortgage rates and high home valuation many homeowners are refinancing their existing mortgages to obtain lower payments, rates and improved cash flow. Brexit and worldwide low bond yields should keep US mortgage rates low for the foreseeable future making this an excellent time to refinance or acquire a new home. Credit markets (the ability to actually get the loan) have improved greatly over the past several years after the tight underwriting standards that followed the 2008 financial crisis. Given these historical low rates, it is an ideal time to refinance any adjustable rate loan into a fixed rate. This may free up some capital for you to invest in making updates to your home in preparation for selling.

In all of these cases, I recommend closing out any temporary line of credit or loan with the net proceeds from the sale of your current home. Keeping that line of credit open or using the cash elsewhere has the potential for drastic consequences and should only be done under the advice of your trusted advisers.

For a referral to a professional that can answer your questions specific to your situation, contact me at 206.399.3641 or